Experts say heating oil price rise will be slow burn

Federal officials project a gradual rise in costs to around $2.75 a gallon by early 2010.

September 29, 2009|By Scott Kraus OF THE MORNING CALL

About this time last year, people who locked in home heating oil prices over the summer started to wish they hadn't.

With the economy tanking, heating oil plunged from record highs of close to $5 per gallon in the summer of 2008, leaving pre-purchasers locked into contracts at $2 more than the market price.

But if you've locked in a heating oil price this year you can probably relax, experts say. Prices are relatively low and expected to remain fairly stable.

The U.S. Energy Information Administration is projecting a gradual rise in prices from the current average of about $2.34 a gallon in the Northeast to around $2.75 a gallon by the first quarter of 2010.

That's typical, say experts.

"That generally would be a safe forecast at almost any point in time, that oil would go gradually up in price," said Robert Hansen, senior associate dean of Dartmouth College's Tuck School of Business.

It's too late to lock in a price by pre-purchasing oil for the winter from many oil dealers, although some, including Bethlehem's Fritch, are still offering a prepay option.

Lock in a price now if you can, said John Bogdanski, president of heatingoilhelp.com, a Web site that offers help cutting heating bills and connects consumers with oil suppliers.

"I do believe it is going to go up, and probably sometime in November or December," said Bogdanski, a former heating oil company executive.

With prices in the $2 range, there's a low likelihood of a dramatic price drop, he said.

That said, there's no foolproof way to predict future oil prices, said Hansen. If the world economy starts to rev up, demand for oil will increase, driving up the price. Geopolitics also play a role.

"It is possible that it would go up dramatically if something were to happen to Iran," Hansen said. "If this recession proves to be a little bit longer or steeper or we go into a double dip, oil demand is driven by economic activity, prices could drop."

Locking in a price gives you predictability, Hansen said. "If you don't pre-buy," he said, "understand you are going to take some risk."

Bogdanski offered one caveat. If you can lock in a price without prepaying for the whole year, it protects you against your oil supplier going out of business.

About one in four Pennsylvania homes is heated with fuel oil, more than twice the national average, according to the Energy Information Administration.

Last year's unexpected dip in prices appeared to scare some customers away from the pre-purchase option, said Jane Domitrowits, manager of Apgar Oil Co. in Allentown.

It also prompted her company to pre-purchase fewer gallons of oil. They sold out this summer. "We got gun-shy because of what happened," she said.

Most of Apgar's customers are on monthly budget plans this year, Domitrowits said. They'll pay a set amount per month, receiving a credit if prices drop, or a year-end bill to make up the difference if prices rise.

Jack Krissinger, general manager of Lehigh Fuels in Whitehall Township, said he expects any increase or decrease in fuel prices this winter will be gradual.

"We have a supply of oil in the United States that we have not seen in 20 years," Krissinger said. "We have a very high supply of oil. And so, we could have a cold week, but the oil is there."